Young people in state care will soon have a right to stay in or return to care until they turn 21.
The decision, announced today, aims to give young people in state care the same kind of ongoing support from foster parents that other young people get from their real parents.
Social Development Minister Anne Tolley said it would cost "millions", but would save more in the long term if it helps young people to get good qualifications, then move into good jobs, and acquire the life skills they will need to live independently.
"Just as a parent, you know that you don't just send an 18-year-old off and say, 'You're going to university and you're on your own,'" she said.
"There is always a place for them to come back to in the holidays. I have children in their 40s and I still have some of their furniture at home."
Rachel Smalley: Raising age children can stay in state care a smart move
The number of young people in state care has risen in the past three years from 4960 in June 2013 to 5312 in June this year, and the proportion who are Maori has risen from 54.7 per cent to 60.4 per cent.
Legislation is already passing through Parliament to raise the age of leaving state care from 17 to 18 from next April, when the new Ministry for Vulnerable Children Oranga Tamariki is to replace the current Child, Youth and Family service (CYF).
But Tolley said the Government always planned to consider raising the age further in a second reform bill containing other details of the new child protection system, which is due to be introduced before Christmas.
A review panel chaired by economist Paula Rebstock recommended last year that the age should be raised to 18 with "a right to stay in or return to care until they are age 21" - a measure the Cabinet has now approved.
"This would align the care leaving age with social norms and bring New Zealand in line with comparative jurisdictions internationally," the Rebstock group said.
Tolley said the shift to age 21 was likely to be phased in over the five-year introduction of the new child protection system.
The system will likely be phased-in starting 2018.
She said young people leaving care would also be able to get "transitional support and advice" to age 25.
Social worker and author Darryl Brougham said the move would help people who have been through trauma and a rough upbringing.
He said 17-year-olds are still searching for identity, belonging and trust.
"To be gone [from care] from 17 to 18 and walking into a society, you're still trying to unpack those things.
"Even at 20 you're still trying to unpack those things," he told Newstalk ZB's Rachel Smalley.
Darryl Brougham was released as a ward of the state on his 17th birthday.
He was nowhere near ready and he was panicked, worried, and homeless for about two weeks, he said.
However Tolley said Cabinet had not yet decided whether to extend the youth justice age from a young person's 17th birthday to their 18th birthday, as Rebstock also recommended.
Children's Commissioner Andrew Becroft, a former Principal Youth Court Judge, has made raising the youth justice age one of his top three priorities, and Tolley said she had personally changed her mind on the issue and now supported raising the age.
"Once they get into that [adult] prison system it's a pretty big treadmill and they are at the mercy of the gangs," she said.
But she said she expected a robust debate in Cabinet, "probably within the next month".
"Some people have quite strong views both ways," she said.
- Additional reporting Newstalk ZB